Immigration cuts 'would raise debt'

Britain's state debt will be forced up if Prime Minister David Cameron achieves his goal of reducing annual net migration into the UK below 100,000, the Government's independent economic forecaster has warned.

A senior official at the Office for Budget Responsibility suggested that, over a 50-year period, restricting immigration on this scale could increase public sector net debt by as much as 20% of GDP - the equivalent of about £300 billion at today's prices.

But the OBR's chairman Robert Chote stressed that the body was not recommending any particular level of immigration and said that the actual outcome for the public finances over such a long time-scale could diverge from its forecasts due to other factors, such as changes in Government policies on pensions, public spending or tax.

Mr Chote told the House of Commons Treasury Committee that the OBR believes immigration boosts national income because migrants are more likely than native Britons to be of working age and less likely to make use of benefits, pensions and healthcare - even after taking into account additional spending on schools, GP surgeries and hospitals to cater for incomers.

"Essentially speaking, inward migrants are more likely to be of working age than the population in general," said Mr Chote. "They arrive after some other country has picked up the expense of educating them and in some cases - though not all cases - they leave the country again before you get to the point at which they are most expensive, in terms of pensions, healthcare and long-term care.

"In terms of the fiscal position, that is what drives the fact that higher net inward migration over this time horizon does tend to produce a more beneficial picture."

Mr Cameron has repeatedly stated the Conservatives' ambition to reduce net migration - the number of people coming into the UK minus the number leaving each year - to the tens of thousands. But the goal is not official Government policy because it is opposed by Liberal Democrats.

Asked what the consequence for the public finances of achieving the Tory goal would be, Mr Chote told the committee: "The direction would be clear enough, because obviously you would have fewer net inward migrants, the fiscal position would be somewhat worse on those grounds."

Mr Chote said that the OBR has not produced a prediction for the impact of net migration falling below 100,000, because it relies on Office for National Statistics forecasts of population size, which are currently based on annual inflows of 200,000, 140,000 or zero.

But a member of the OBR's Budget Responsibility Committee, Professor Stephen Nickell, told the committee that a projection roughly halfway between those for the 140,000 and zero levels "would not be too far off" the correct figure.

The OBR's Fiscal Sustainability Report, produced last year, predicts that public sector net debt will stand at just under 100% of GDP by 2063 if net migration continues at 140,000 a year, but will reach as much as 140% of GDP if it is reduced to zero - indicating that Prof Nickell believes that achieving Mr Cameron's target could increase the UK's state debt by around 20% of GDP over 50 years.

Conservative committee member David Ruffley asked whether the OBR had taken into account additional spending on services like nursery and school places for migrants' children and the extra demands they make on GP surgeries and hospitals.

Mr Chote replied: "One consequence of having net inward migration is that GDP is higher as a consequence of the economic activity that these people are doing, helped by the fact that many of them will be of working age.

"We assume that public expenditure in most areas of public services is constant as a share of GDP per person, adjusted for age. So we are assuming that there will be higher real spending on things like schools and hospitals and state support for housing as a result of net inward migration, because GDP goes up and we assume that public expenditure on those sorts of areas goes up in line with GDP.

"It's not as though we are not taking into account the impact that has on public services."

Mr Chote stressed that the 140,000 figure - implying net immigration to the UK of around 7 million over the next half century - was not an OBR recommendation.

"The fact that we have chosen 140,000 doesn't imply that that is our preferred level of net inward migration," he explained. "That is not something on which we would have a view at all."

And he said that governments have the power to alter the fiscal outcome of a shift in migration levels by changing policies in other areas: "Clearly if you made a choice on migration, or an assumption on migration, that made the fiscal position look better or worse, then you could adjust other policies to compensate for that.

"There is no level of net inward migration you have to have for there to be fiscal sustainability. It's an influence on a whole variety of other choices government has to make."